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July 17, 2013 | money-management

How to Use Assets as Collateral for Loans

Collateral loans, also known as secured loans, make it possible for many people who have less-than-perfect credit to get good rates on loans. Since collateral loans are secured by property or assets that the borrower owns, taking out a collateral loan means that the borrower must promise to hand over the asset if he does not abide by the loan’s terms.

Cash Secured Loan

If you have limited credit history or are recovering from a financial downturn, your credit union can help you secure a good loan rate based on your available funds. For example, if you currently have cash in a checking or savings account, you may qualify for a share secured or share certificate loan. A share secured loan is an ideal option for those who want to build their credit by making regular payments and use their available cash as collateral.

Collateral Secured Loan

A collateral secured loan involves using the purchase itself as collateral. For example, if you need a home or auto loan, you can use the home or vehicle as collateral in case of default. A collateral secured loan is based upon the borrower’s creditworthiness. Because collateral provides the lender with some security in case of default, collateral loans generally have lower interest rates than unsecured loans.